If you’ve been using the tiny spiral notebook I suggested to record all of your expenditures, down to the penny, you’re getting a good picture of where your cash goes: vending machines, coffee, parking meters, breath mints … the whole shebang. Pull out your checkbook and your credit card statements, along with any automatic deductions from your paycheck or checking account, put all the figures together with your notebook’s, and you’ll have a decent snapshot of where it’s going, going, gone.
(And what’s a major credit card, you ask? Any one that most stores accept, naturally.)
As you tally how some of those little items become expensive over time, you may well need to apply the emotion-related insights you now possess — to say nothing of a moment or two for prayer. Remember, each of these is the result of a decision.
I’ve usually had a pretty clear picture of where my change was going and am quite aware how easily we can be “nickel and dimed” out of our cash. Still, seeing it all at once can come as a shock.
Up to this point, we’ve been learning to speak more openly about our experiences with money. But now we’re turning to some essentially private work, done in several stages. This is where the action really begins. As you get your act together, it’s also where the fun really begins. Seriously. It’s where those earlier considerations come down to the bottom line. It’s the recipe where all of our ingredients become a dinner or a dessert. It’s where we get ahead of the bills.
It’s what’s usually called budgeting, though holistic CPA Lu likes to give it a more positive spin, referring to it as a Spending Plan. Either way, the gold-standard guideline for this is set up in Your Money or Your Life by Joe Dominguez and Vicki Robin, for reasons I’ll discuss shortly.
Usually, when we think of budgeting, it’s along the lines of dieting. What do I have to give up to lose weight or reduce expenses?
Joe and Vicki have a nifty series of steps around this. They have us look at each purchase and then ask about our satisfaction level with it. Can we get as much pleasure by spending less on that item (buying a less expensive bottle of wine, for instance) or, if we spent more, would our enjoyment rise correspondingly? They also introduce a concept they call “gazingus pins” — pet expenditures we indulge in, for our own pleasure; we’ll look at these and other “toys for adults” in a bit.
Taking your snapshot, break out your monthly spending by categories — housing, utilities, transportation, food, clothing, and so on. Within each one, what is essential and what is discretionary? (In my old yoga circles, this was seen as “needs” versus “desires.”) In their system, you then make a plus sign or minus sign for each item to indicate ways to adjust your spending level. Yes, you’re allowed to say you want to spend more on something. This doesn’t sound like dieting, does it?
You then match this against your monthly income. The goal, if you’re interested in financial independence, is to increase the amount you’re saving.
There are two ways to do this. One is to increase your income. The other is to reduce your spending.
Their book contains a nuts-and-bolts approach to budgeting and planning — or, as they put it, to achieving the American Dream on a shoestring — and you really should take a look at it. Other spreadsheets are available — feel free to tell us of ones you’ve found helpful or of ways you’ve tweaked Joe and Vicki’s.
As you look at your spending, what items surprise you? Are any out of line with your expectations?